Validity of Governance-Prosperity: Fresh Evidence Under Homogeneous and Heterogeneous Methods

Abstract

The purpose of this study is to determine whether governance has an impact on per capita income. The governance-prosperity hypothesis was validated using data from 48 high-income countries. This study examines all governance indicators in sample countries rather than one that addresses specific effects. We find that good governance enhances prosperity, while FDI, exports, and urbanization positively impact effective governance outcomes using homogeneity and heterogeneity panel methodologies. In contrast, household expenditures exhibit a diverse relationship that requires a combination of saving policy and spending to increase per capita income. We found that effective governance attracts foreign direct investment, leading to high exports and urbanization trends. Therefore, countries should strengthen their governance apparatus to reap the benefits of sustainable economic growth.